Procore Technologies (PCOR 0.46%), a leading provider of construction management software, went public in May. In this episode of Industry Focus: Energy, Procore founder and CEO Tooey Courtemanche joins the show to share how Procore is bringing construction into the 21st century.
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This video was recorded on Aug. 12, 2021.
Nick Sciple: Welcome to Industry Focus. I am your host Nick Sciple and I'm joined today by Motley Fool contributor Luis Sanchez. Today we're excited to welcome our special guest Tooey Courtemanche, the founder and CEO of Procore, a leading provider of construction management software. Procore came public back in May and just reported its first results as a public company last week. Tooey, thank you for joining us.
Tooey Courtemanche: Thank you so much, Nick, I appreciate it. Nice to see both of you.
Sciple: Great to have you here. Great to be talking to you today. First off, for folks who haven't heard of Procore, what is construction management software? What does your company do? What problems do you solve for your customers?
Courtemanche: It's a great question and yes, most people don't quite understand this. However, I will say that 7% of the global population actually works in construction, so I'm probably speaking to a certain subset of your audience right now. But in general, construction, it doesn't matter if you're talking about a nuclear power plant or remodeling your bathroom is highly complex and you have lots of different stakeholders that are coming together to deliver a project on time, on budget safely. But the challenge is that the projects of prototype never to be built again, the projects are always generally just not the same again. You have a bunch of team members that have never worked together before. They all work for different companies, they all have competing interests, but they all actually share the project risk. Coordinating how communication, collaboration, and the overall information gets shared is critical in order to make construction performant, and I'll just give you one stat that might ring true for your audiences that there's $500 billion worth of waste, that's a half $1 trillion. Just the waste that goes into construction, because people are working off the wrong set of information, they're installing the wrong things, they're doing things out of order, they're not at the right job site at the right time. It's a highly inefficient industry and Procore's platform brings everyone together and connects them to drive efficiencies into the industry.
Sciple: Right. This is like the plumber can be on the same page with the electrician can be on the same page with the person overseeing the overall project and be on the same page with the owner. All of these people are trying to figure out how to build something we've never built before, and may not be able to build again?
Courtemanche: Never build together, which is really important, and they don't work for the same company, so yes, it's really complex and it's very up front with challenges when people are working in isolation.
Sciple: Absolutely, so Procore helps solve that problem with its project management software. Can you talk about what that software does and how it makes things easier for all these operators?
Courtemanche: Absolutely. Again, we are a platform and first and foremost, so it allows all project stakeholders to come together and work off of the same set of information, the right information, and not old stale information. We don't only do project management. When you think about the problems that Procore solves, we start by solving problems in the preconstruction phase of construction, which is where all of the coordination happens before you actually put a shovel in the ground. If you think about that phase of construction, if you get something wrong there, it amplifies, it gets way worse over time and so what we do is we have tools that allow people to make sure that they are estimating and their budgeting and their bidding, and their design coordination all happens before the shovel hits the ground to mitigate problems before the construction starts.
Then we have our project management flagship product, which is also on our platform, which allows for just managing the course of construction, all that complex communication that happens between that plumber and that electrician and that project manager and the owner, architect, engineer, you name it. During the course of construction, and then while you're doing construction, you also manage your financials. We have a really amazing product, our project financials, which allows you to manage your budget, your time, material, everything that goes into the job in one place and then we have resource management, which is everybody that works and construction tends to have people that work for them. You need to manage their time card, giving them the right job at the right time.
All of those tools on our platform enables our customers to manage more effectively their challenges of construction and then the last piece and I'll stop rambling is the, we have 300 partners that build on that platform, but solve for all of the discrete business cases that Procore doesn't solve for today. Collectively, our customers have a solution set that allows them to run more efficiently and really just as transformative, the industry is generally run on pen and paper, believe it or not, 50% of the people that we talk to every day are managing these complex projects using pen, paper, and Outlook email. It's not efficient and Procore brings those efficiencies.
Luis Sanchez: Just to dive more into the pen-and-paper comment. You guys highlighted in your S-1, that McKinsey study that shows that construction, hunting, and fishing, three of the industries where there's the lowest software adoption, and I'd just be interested in hearing more about like what are some of the barriers to increasing technology adoption in the industry that you've had to fight against?
Courtemanche: It's a great question, Luis. It's so fundamental, that's going to make you smile. The McKinsey study showed the major industries in America and the adoption of technology and construction is second from the bottom, above agriculture and hunting, which as you can imagine, maybe the next business I start will be solving problems for those industries. But the construction could not adopt technology until the internet made it to the job site, and so really that didn't happen until the iPhone came out in 2007, but really in 2011 when the iPad became ubiquitous. Finally, folks that actually are working in the field, which is where construction happens, had access to the information that they needed in order to be successful. Though we started in 2002, we really didn't hit our stride till around 2012. But that allowed for folks to start adopting technology.
First and foremost, they couldn't adopt it because they didn't have the technology in their hands to be able to do so, and secondly, there were a lot of solutions that got built. People could download a photo management tool or a document control tool from the App Store. But then you had a bunch of folks on different job sites. It was siloed information that executives at the company couldn't do anything with because you just have people with apps and so the evolution to the Procore platform enables us this 360-degree view for all party members into the complexity and the information they need to run the job. It's not that they were late, it's just technology was late to come to them and now it's people are rushing to these solutions like Procore because we provide so much value.
Sanchez: Yeah. That implies that to a degree, you are teaching or reaching construction discussion on how they can get their jobs done. How important is education or training as part of your business and your go to market?
Courtemanche: Luis, that's awesome, I love that you asked that question. Procore provides our solution to 85% of the construction management universities in America. It doesn't matter whatever school you are at, wherever they have construction management, we provide it for free, and one of the most interesting things that we've learned is there was another product that we have displaced in that space, and the professors all come to Procore and they say, "We used to have to teach our students how to use the software, and by the end of the semester, they knew how to use the software, but they didn't know how to build, and with Procore, it's so easy to use that they actually can start on day one, teaching the students how to be builders," which is probably one of the best compliments we could get. Their education is very important, we also provide a lot of continuing education for free to the industry. Prior to Procore, there were a lot of continued education programs that you'd have to pay for to get recertified for safety, quality, and or if you're going to operate machinery or whatever, Procore provides a whole bunch of technology training for free to the entire industry, not just our paying customers that allows them to keep current and their skill set, as well as having or not having a shell out dollars of their own to do so. It's all part of our vision to improve the lives of everyone in construction, and it's just one aspect of how we give back to the industry.
Sciple: One of the things you've talked about is the need to keep everybody on the same page across the board from the general contractor all the way through specialty contractors, owners, all those things that comes into your revenue model, the way you price your software. Can you talk about that and why that's such an important part of your go-to-market strategy?
Courtemanche: Absolutely. The fundamental essence of Procore's mission is to connect everyone in construction on a platform. When I founded Procore in 2002, the first thing I had to decide was how was I going to monetize the business model. I noticed at the time the only real monetization strategy out there was a per-seat license model. Now, there's no way I could ensure that we would get everybody on a job to buy a seat at Procore, and the challenge in construction is, when you have all these complex workflows that have to get done, and it's not like inside the walls of The Motley Fool, where you have a workflow that has to get approved for an expense or something, these workflows in construction jump companies. It goes to subcontractors, GC, architect, owner, and so these complex workflows require every single participant on the job to have access to the technology in order to be successful. If we had done a per-seat license model, those workflows would fall apart and they just break simply, so that wasn't going to work. So, we created an unlimited user model for our customers. If you're a general contractor, you can bring on all your sub-contractors, material and equipment suppliers, your owner, everybody, your insurance providers, your bankers, everybody onto the platform, and no additional costs. So now you can actually complete those workflows.
One of the benefits to that is that we now have over 1.5 million users on our platform sharing information, generating a whole bunch of valuable data on the platform that we can now reflect back to our customers so they can run better businesses and be more performant, which is really exciting when you have this much data. Yes, it's very revolutionary, but it does actually allow for us to be able to complete these complex workflows where other business models just simply fall down.
Sciple: When you talk about this unlimited seat licensed model, I think it sounds to me like it's a land and expand; you form a relationship, one particular party in this chain, they spread out to other people. When you're thinking about going out and selling your software, going to make that landing, who are the customers that you're talking to, working with to get that type of traction and how do you go about doing that?
Courtemanche: Nick, in the beginning, Procore was a general contractor. You can just think of Procore, back in the day, as a mid-market U.S. general contractor solution. Over time with our business model allowing our general contractors to bring everyone else on including their owners and specialty contractors, we have now expanded, so we're now, and by the way, if we get back to our mission of connecting everyone, ultimately, everybody that's involved in the construction process belongs on the Procore platform. We now have a very large business that sells to the owners of the projects, as well as the specialty contractors and it's very tempting for our user, we call him a collaborator; a non-paying user who's in a project, to look at the value that Procore provides to the project team in general and say, I need this to run my business. You can create this flywheel effect if you build awareness, the adoption increases, they get more engaged, they see the value, and then they become customers. It's a virtuous circle that works very well for us. That's, I think, one of the reasons why we've scaled so quickly.
Sanchez: Yeah, that's really interesting when you talk about the different stakeholders and now you guys are also serving owners. If you could maybe expand on that a little bit, when it comes to the owners, are there different types of features that they're looking for just given that they have a different perspective on the project?
Courtemanche: Yeah, Luis, they definitely. If you zoom out on any project, every team member cares about time and money, schedule and budget. Doesn't matter if you're the owner, the GC, the subcontractor, the lender really cares about that, too, as well as the insurers and everyone else. The two pillars that everyone cares most about is the schedule and the budget, time and money. Those are fundamental. Now owners care a lot about some of the detail underneath that, which is, what are driving cost increases, why is the budget going from X to Y? They care about that. They care about progress photos. They care about being able to understand the time of when the project is going to get done. Owners can start monetizing the facility that they're having built. They have those vantage points. Specialty contractors have it really rough because they work on a ton of projects with a ton of different general contractors, and their getting the right people to the right job at the right time with the right material and equipment is critical to their success. If they get that mix wrong, they send the crew to the wrong job site with the wrong equipment, they still have to pay those hourly time-sheets, but they don't get reimbursed from the job. Then, of course, the general contractor is trying to coordinate all the complexity on the job across all the stakeholders and they care about basically everything that can go into construction, and if you've ever built anything before, I should have asked you this in the beginning, have either one of you ever remodeled a bathroom or built a mansion or a high rise or nuclear power plant?
Sciple: Unfortunately, no. I aspire to do the mansion part in the future for sure.
Sanchez: I haven't, especially not a nuclear power plant.
Courtemanche: Well, all kidding aside, generally, when I have this part of the conversation, people get it. They understand that bringing all these folks together, everyone has their own unique needs. But the risks are so high on projects to blow the schedule or to blow the budget, or frankly around safety, which is another area that we're really passionate about, that having a solution like Procore helps mitigate all of that uncertainty, and if you think about it, it doesn't matter if you're a large multinational corporation or you're Nick building a guest house. These are big capital investments that owners have, and they really care about the outcomes if they're spending all that capital on. Everyone just has a unique vantage point and everyone has a need to make sure that it's done effectively. Again, I just think that's where we come in.
Sanchez: For sure. Given that you guys are establishing relationships with the owners, do you guys see an opportunity to maintain that relationship post-construction?
Courtemanche: We do. Right now Procore's focus is on, as I mentioned, pre-construction to closeout. Closeout is really when the general contractor hands the keys to the owner and says here's your building. What's beautiful about having everybody working off the same set of information, is you end up having, not what was designed in the beginning of the job, which never is actually what gets built, at the end of the job you have what's called your ad builds. Basically, it's the, here's what you actually bought Mr. or Mrs. Owner. This is where the plumbing actually is, this is where the electrical systems actually are. This is everything that you need to know to manage the building. There are a lot of folks that take the data from Procore once the job is done and import that into their facilities management solution. I would say ultimately, though our focus has always been on where we are today, given the fact that we have all this information and we can provide so much value to owners, there could be an opportunity somewhere over the horizon in the distant future where facilities management looks good to us. Now, Procore's success is also predicated on the fact that we're very disciplined and we're very focused, and we're trying to deliver as much value as possible where we can, and so we're very disciplined about taking on these new opportunities. But as you're alluding to just the construction industry global is a $14 trillion industry, and that's just for building stuff. You can actually imagine how big the opportunity could be if you get into the actual operation and maintenance of buildings all the way through decommissioning those buildings. There's a bright future ahead of Procore, but for now, we're staying focused.
Sciple: You mentioned these future opportunities available to the company, that's a $14 trillion total addressable market, it's certainly lots of room to grow into. Today what share of that market would you say that you're addressing? How much of that do you think is accessible to you here in the relatively near future?
Courtemanche: Well here's the beauty of a $14 trillion TAM is it doesn't really matter. The reality is that we operate in nine countries. We just opened up our offices in the UAE and in Singapore. The U.S. market, as you probably are aware, is like a $1.5 trillion portion of that $14 trillion. Some of the estimates we look at the markets that we're serving today just those other eight markets other than the U.S. represents a two, three times larger opportunity than the U.S. But again, the numbers are so big in terms of TAM that it's really more about how we service the industry and do it in a way that, we're not moving too fast and not getting distracted. But we're actually providing a tremendous amount of value to our customers. Again, yeah, the TAM has never been Procore's challenge. It's always been, how do we get the word out about the solutions we provide? Then how do we get more people on the platform?
Sciple: One of the things I wanted to ask about, so you have the Procore marketplace, your app store that fits into your strategy. What other part of that that I think is interesting is you've used that, you've made a couple of acquisitions in the past year, both of which being from companies that were partners in your marketplace, how do you think about where that marketplace fits into the business and the opportunities that gives you up to bring more companies in and broaden your offering?
Courtemanche: I look at the app marketplace as being, in my mind, there's no daylight between them and Procore's. It's an American situation. We provide collectively a tremendous amount of value to our customers that are on our platform. Given that Procore has a very unique vantage point that we can actually see the adoption and engagement of the products that are built on our platform, and we partner with the app marketplace partners differently and I would argue substantially better than most, because what we do is we actually provide a lot of non-technical services to them. For instance, one of the founders of one of the companies that we bought Honest Buildings, the founder, Riggs Kubiak, spends a lot of time with the CEOs, founders, and the leadership teams of our app marketplace partners trying to help them develop better businesses, trying to understand how to build mission and vision and values into their organizations, how that prep them for scale.
What we try to do is we want to be the best partner they have so when it comes time for a possible acquisition, we know exactly what we're working with and we also have developed their skills and their ability through cultural engagement and everything else to a point where it's very accretive to the business. So yeah, it's a very nice opportunity for us to see engagement, adoption rates. Then if the culture's right and the customers are demanding it, there's always an opportunity for us to be acquisitive, and it starts where we've been looking and, you saw those past acquisitions and we will continue to foster those relationships.
Sciple: Awesome. One of the questions I have for anybody that's leading a newly public company, as we in the public markets are trying to figure out how to make sense of your business, what are the numbers that you track internally to see that you're achieving your goals, and what are the things that you would recommend to us as public investors to follow if we're keeping track of your business?
Courtemanche: It's pretty simple. I would keep it as simple as possible with Procore, because we are a pricing model, remember, we don't use the seat license model. We don't have a seat license model. So we base our pricing off of both the construction volume that the company is running, as well as the products that they buy from Procore. We have 13 products, so there's a mix in there. You can get clever with RPO and everything else, but what we ask everybody to look at, is just look at our revenue and our revenue forecast and just track that, because we think that that's the most stable metric that's out there. Because we build off of construction volume, as construction increases in overall market share, it gets bigger and bigger. Procore gets a good early warning sign as to what's coming ahead. Because look at the infrastructure bill that the Senate just passed. That $1 trillion investment that the U.S. government is going to make into infrastructure will eventually lead into backlog for our customers somewhere down the road when those jobs become shovel-ready, and that backlog will turn into construction volume for Procore, which is then you will see the increase in our revenue over time. Again, I would just focus specifically on revenue at this point.
Sciple: Excellent. That's what we should be paying attention to, specific to Procore's business. As we zoom out, you mentioned the infrastructure bill, lots going on when it comes to the new construction, we want to get more green energy, that sort of thing. What trends are you seeing in the industry today that are going to be playing out here over the next few years?
Courtemanche: Yeah. By the way, I'm still struggling to get through the 2,702-page document, which is the bill. But I got a fair way through it yesterday. There's a lot in there, and there's a lot in there that benefits the construction industry. One of the things I think it's just so important to tell people is you don't have to be a construction specialist to understand our infrastructure is failing in the U.S. You have to just look at a bridge and anywhere in the United States, you'll see the crumbling concrete, and the fact that roads need to be widened, and traffic's bad everywhere. There's a lot of opportunity once we start making those investments. That our customers, which are the contractors and the owners and especially contractors, are going to benefit from actually building over the long run. It's a very broad and diverse bill. There's a lot of things in there from harbors to 5G, to roads and bridges. There's stuff around just a varied number of different investments. In general, I think it's going to be an uplifting opportunity for the overall industry, and it's a great investment in America.
Sanchez: One of the things I think about when we're talking about the construction industry is that the construction companies themselves tend to operate with fairly low profit margins, like, below 5%. I'd love to hear about how you guys think about affordability when selling to your customer base and any other comments you have on ecosystem health today.
Courtemanche: If you mean affordability of our products, is that the question?
Sanchez: Affordability of not just your product, but just software in general.
Courtemanche: Historically, the IT spend that the construction industry has done as a percent of revenue has been very low, some of the lowest. But our contention has always been, it's not because they didn't want to spend the money, it's because they didn't have anything worthwhile to spend the money on. No. 1, No. 2 is, our platform provides so much value to our customers. I think that's one of the reasons why we've scaled so much, which is the industry is so fundamentally broken that unfortunately, you're right. The average construction firm is bringing home gross margins less than 5%, in some cases, 2%. That is a direct correlation to how inefficient and how much lack of transparency there is in the industry, which goes back to the $500 billion worth of waste. That has to come out of someone's pocket, and that comes out of the pocket of the general contractor. Procore's mission is to connect everyone, and when we're successful on that, it actually will allow contractors and subcontractors owners to drive a higher-margin return because we eliminate all of that waste, and it just drives more efficiency into an industry that's really been struggling, and you can't really get lower gross margins than that. The opportunities are really big.
Sanchez: Great. What are some of the opportunities that you're still seeing in terms of new products or even existing products that don't have a lot of uptake that you think can help your customers the most going forward?
Courtemanche: Again, we have 13 products on our platform and then the 300 partners. There's a lot of solutions out there, but the interpretation I would hope everyone takes away from this is that the jobs of construction are very complicated, and they require a whole bunch of different solutions brought together on a single platform in order to enable people to do their job effectively. We started out with project management, which was our flagship product. If you think about coordinating project team members, everybody from all the subcontractors to material and equipment suppliers, project management is really core to that. We've built out our 13 products to solve those challenges. One area that I'd like to really point out though, is our project financials. That product line alone is a industry-defining new solution, and that solution allows for project teams to not have to go into a VPN, into their corporate office's ERP system, and then try to take data out of that and merge it together with the spreadsheets of what's going on on their project. Our connectors from our project financials tool allows our project teams to have full visibility in real time into how their projects are doing, and it's very much transformative. I think we defined a new product category and the adoption rate has been very positive, and we're excited to get more and more customers onto that product line.
Sanchez: Now, it's really cool to hear about how innovation is impacting the industry and where it's going from here. Something I find really interesting about the Procore story and about your story as a founder is, you started the company from basically day one. You are the founder, and now your company has scaled and it's become this very sizable public company. Running a small private company and running a large public company are two different skill sets. What have you been able to learn along the way that has prepared you to be the CEO of a publicly traded company today?
Courtemanche: Well, I'll tell you, I love when people ask me that question because if I didn't have a growth mindset and I wasn't focused on constantly learning, I wouldn't have been able to scale this business to where it is today. A friend of mine, Tobi Lütke, who is the founder and CEO of Shopify (SHOP 0.05%), likes to tell me all the time that, if your business is growing to 100% a year, your skill set has to be growing at least 100% a year in order for you to just keeping up with your business. I spend a lot of time working with mentors and people that have running public companies at a larger scale. Just trying to learn what I can from folks that have been there before me, and I've done that the whole path from when I was just a one-person company up till the day that we're a public company. Frankly, I'm grateful for that, and one thing that's really an interesting tidbit of information is, I'm able to talk to some of the most notable CEOs on the planet, and they give me their time. I do the same for folks that are coming up in their careers, and I've found that the whole way, which is, there's a camaraderie of founders in particular that want to help each other out. I've been digging a lot into that, and I'm very grateful for it.
Sciple: I'm glad you brought up that camaraderie of founders and Tobi, we're big fans of him at the Fool. Shopify has been part of a Fool recommendation for a long time. I like to ask this to all the CEOs we have on, so you already mentioned Shopify, so maybe we take that one off the list, but what's the company that you really admire and why?
Courtemanche: I'm going to be a little bit disingenuous here because I'm going to call out my mentors, because I chose the mentors because I love their company. First, I think Snowflake (SNOW -1.18%), and Frank Slootman is an amazing leader. Just on every vector has been an amazing inspiration to me as a person. He's a great leader in terms of seeing things very clearly. You can imagine from the complexity of a business, we have about 2,400 employees or so. There's so much nuance and gray area, and to be able to lean on Frank and ask him how he looks at things. It provides a lot of solace, and I think that Snowflake obviously is reflected in their numbers, the performance under Frank.
The other one, which might be a little surprising to you, but I will tell you is that Satya Nadella is a mentor of mine at Microsoft (MSFT -0.04%), and to see what Satya has been able to do in the last seven years or so, to transform a business into arguably one of the best technology companies again in the world, with one of the best cultures is no small feat. I just rely on him a lot to just help me understand scale, how to look at the world, and frankly, how to create some frameworks that I can use in order to manage the complexity of construction. I would say Microsoft and Snowflake are two, there are a lot more. By the way, I should give a big shout out to Tobi. He has really embraced me over the years and given me a whole bunch of feedback and a lot of advice, and I'm very grateful for him as well.
Sciple: Well, Tooey, thank you so much. This has been a great conversation and maybe last question for you, as we've talked about here. For half an hour, lots of conversation about the Procore, about your company. If you wanted to leave a potential investor with one thought, one thing to keep in their mind as they go away from this conversation, what would it be?
Courtemanche: Thank you. I would say don't think of Procore just as a platform. Think of Procore as a partner to the construction industry. The reason we win all the time hands-down is not just because we have great tech, which we do. It's because this is the way we partner with the industry, and so because of such early days and Procore's penetration in this $14 trillion TAM, I would just keep an eye on how we continue to progress. Because I do believe the best partners in the industry, the people who put their customers first, will win every single time. That's where our focus has been and will continue to be as we scale into this massive opportunity.
Sciple: Awesome. Thank you so much for joining us. Hope we can talk to you again sometime soon.
Courtemanche: You got it. Nick, Luis, great to see both of you.
Sciple: Awesome. As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against the stocks discussed, so don't buy or sell anything based solely on what you hear. Thanks to Annie Franks for help mixing the show. For Luis Sanchez and Tooey Courtemanche, I'm Nick Sciple. Thanks for listening, and Fool on.